Penalties for late VAT set to change

If you sometimes struggle to make your VAT payments on time, Page Kirk partner James Haywood explains the rules you'll need to bear in mind from next April.

Late filing of VAT returns can happen on occasion, whether because of issues with your accounting system or simply just forgetting to file the return. Currently, filing a VAT return late or paying your VAT after the deadline may result in a 'default' being included on the business' record. This may result in a business entering a surcharge period for 12 months, where if a new default is incurred, then a surcharge penalty may be due. The severity of the penalty depends on the company's annual turnover and the number of times a default has been incurred. This system is, however, about to change.

From 1st April 2022, a new points-based penalty system will be introduced, whereby if a business submits a return late, they will incur a penalty point and if a business exceeds the points threshold, they will become liable to a £200 fixed penalty. The threshold level does vary, dependent on the VAT return frequency:

Annual submissions = 2 points

Quarterly submissions = 4 points

Monthly submissions = 5 points

Individual penalty points will automatically expire after 24 months, as long as the business remains below the points threshold. If a business does exceed the points threshold, then all penalty points expiry periods will alter to the following:

Annual submissions = 24 months

Quarterly submissions = 12 months

Monthly submissions = 6 months

If a business continues to incur defaults after breaching the points threshold, then a fixed penalty of £200 will be applied for each default and the expiry period will restart.

There is also a number penalty system to be introduced for late payments. No penalties will be applied for payments that arrive within fifteen days after the payment deadline, which is to remain one month and seven days after the VAT period. There is, however, a sliding scale after this, which is as follows:

Payment made 0-15 days after deadline: No penalty

Payment made 16-30 days after deadline: 2% of the outstanding amount

Payment made 31 days after deadline: 4% of the outstanding amount

There will also be a second penalty from day 31, which will accrue daily at 4% per annum until the outstanding amount is paid. It should also be said that if a business proposes a Time to Pay Arrangement (TTP) with HMRC, which is then subsequently agreed, the date of proposal will be taken as the date for the penalty.

Late payment interest will be introduced at the HMRC official rate at 2.50% above the Bank of England base rate, which is currently 0.10% per annum. This will be charged from the payment due date to when the VAT is paid. It will also apply to VAT returns, VAT amendments and assessments and VAT payments on account. Coincidentally, if a VAT repayment return is submitted, then repayment interest will be payable in VAT either from the last day the payment was due to be received or the day it was received, whichever is later, until the date the repayment to the taxpayer is authorised or offset.

As you can see this is a fundamental change to the VAT penalty system, so if you are unsure of anything, then please do give us at Page Kirk a call on 0115 955 5500 or email enquiries@pagekirk.co.uk.